The Future Of Work Is Hybrid | The Acquirer's Multiple®

In their recent episode of the VALUE: After Hours Podcast, Jake Taylor, Mike Mitchell, and Tobias Carlisle discussed The Future of Work Is Hybrid. Here’s an excerpt from the episode:

Mike: Then, sprinkle on top of that, this work from home dynamic, it’s really fascinating to me, and I have a very strong view. We’re going to see if I’m right or not. But my view is that once you give– Munger always tell the story. He’s like, “I discovered this psychological tendency with my dog. I’ve the sweetest dog in the world. Dog is great, gentle, no problems.

But if you gave that dog a bone or a piece of meat, and then you try to take it back, that dog turned vicious, really, really fast.” My view is with work from home, once you give it to people and now that it’s ingrained in everybody, because we’ve been doing it for 18 months, it is really hard to take back. The evidence I have that it might never come back at least to where it used to be, because you’ve seen some really old-school companies, all-state PWC announcing that they’re letting tens of thousands of employees of a permanent work from home or hybrid structure.

Amazon just said they’re going to do that. I believe Apple is doing it, Facebook, but it’s happening to non-tech businesses. It’s happening in insurance. It’s happening in auditors. So, I’m looking at that I’m thinking well. So, what does it mean if I can work from home even three days a week? Well, I don’t have to live in San Francisco anymore. I can live– I think you could even live in like Davis, or you could live in Sacramento.

Work three days a week in the office or two days a week in the office, it’s a heck of a commute but if you only had to go two times a week, why don’t you pay half for real estate? If that dynamic persists, what I think will happen is it won’t necessarily create a new household, but it will create the need for a new housing as people decide to sprawl. It just gets cheaper cost of living, better schools, lower taxes, lots of reasons for people to move. I think you’re going to create structurally demand for new housing units over the next few years as people decide they can just live anywhere. So, I remember– [crosstalk]

Jake: It sounds like a lot of demand for energy then to facilitate that kind of sprawling.

Mike: Yeah.

Tobias: Self-driving cars, work from home, flying cars, it all sounds great.

Jake: What do you think about the statement? What if the demand for all that housing is sitting in Harvard’s endowment right now? Student loan, basically, crushing– [crosstalk]

Mike: I thought you were going to go in a different direction, and I was going to actually even push on that a little bit farther. Let’s put it on the student lending path. There is a scenario where even though balance sheets look pretty good that 25-year-olds to 30-year-olds decide, “Look, I can’t afford to buy a house because I’ve got to repay my student loans.”

That’s part of the Zelman case of like, “I’m not sure for 10 years, people didn’t get aggressive when they’re 20s buying homes.” My thinking is that now that they’re hitting their 30s. I tried to raise a kid in an apartment in New York City, it was really unpleasant. I was very happy when we had a second child and moved out. My theory is everybody else is going to think the same way. So, I’m projecting. We’ll see if that ends up being true or not, it could be totally wrong.

Zelman’s point is that they’ll go right back into that like, “I’ve got too much debt. I’m just going to rent. I’m going to stay multifamily,” so they’re not going to need in a single-family housing unit. That could be right. That absolutely could be the case where people just feel like they’re too levered. My thinking is, it’s an interesting dynamic is that the millennials saw the housing crisis and it was the first time at least in my life and I think in the history that I studied, where housing really took a digger. It was believed up to that point that if you bought a house, it was almost impossible to lose money.

Tobias: It was not true though, right? It wasn’t true.

Mike: It wasn’t true. It was just a belief.

Tobias: That was a belief.

Mike: It’s just like everybody believes in stocks. It’s impossible lose money, and of course, we know that’s not true. But it’s [crosstalk]

Tobias: Hasn’t been true for a long time.

Jake: You’re breaking up.

[laughter]

Mike: Sorry, you’re breaking up. I can’t here. What was that?

Tobias: There’s a good comment here from Mike Bartlett in the comments. Fed purchased a total $580 billion in mortgage-backed securities during March–April 2020, and has since averaged $114 billion per month. That’s got to have some impact, right?

Mike: Sure, keeps rates really low. That’s the idea. That’s why you can go get out and get a 15-year mortgage right now for 2.15. I can get a 30-year for 3.2. That’s happening because the government’s letting it happen. It’s not happening because the banks really want you to buy that cheaply. That’s why I say, the risk in my mind is interest rates spike and it becomes less important. It’s actually very affordable to buy a home now [unintelligible [00:35:58] on top of my head, go look at any inflation-adjusted mortgage payment, because interest rates are so low, even with prices so high, it’s actually very affordable to buy a house. I think it’s more affordable to buy house than is to renting. [crosstalk]

Tobias: I think the deposit is the issue, right? The deposit is the issue because the deposit goes up with the house price.

Mike: Yeah, that’s right. There is a funny tweet that I’ve been saving up for a 20% down payment for 10 years and meanwhile the price almost got triple.

Jake: Never caught up.

Mike: [laughs] But I also think that creates a dynamic too where as the price goes up– If it happens really quickly for anything, a house, a commodity, people get a shock. They’re like, “Whoa,” and then if it comes down at all, it’s like, “Okay, now it’s recent. Even if it’s more expensive than it ever was, and the one I’m thinking of a very specific commodity right now that I get a lot of attention to.” [crosstalk]

Tobias: They all look that way. It’s not unique to one– [crosstalk]

Mike: Yeah, and everybody’s like, “Oh, it’s cheap,” and I’m like, “Yeah, the current price is 10% above the prior peak before COVID.” That used to be considered like, “Holy hell, why would anybody ever pay that price?” Now, everybody’s like, “Yeah, that price makes sense.” I’m like, “That’s what I want to hear.”

Jake: Total recency bias.

Mike: But it’s also, I think, extends to housing for Millennials. It’s like you see the people who bought homes, I bought my home in Colorado 2018. I remember thinking like, I’m probably overpaying for it. I think I did overpay, but it was a house that hadn’t traded in 50 years. It was a one and one, my wife and I were like, “You know what? This is our forever home. We’ll just do it.” Now, that’s looking like we got the steel of the century, and my sense is that if I’m right about demand and we just can’t structurally build the homes fast enough that people are buying homes are going to look pretty smart two or three years from now too.

So, I think that perception– I do think in the United States, people want to own homes. It’s a fundamental belief of mine, and I think it’s been different for 10 years, because millennials watched the housing crisis. But I also think it’s just a fundamental thing to us, I think we all kind of want to own– It’s interesting if you talk to immigrants that come from places where people mostly don’t own their homes, everybody’s like, “This is a cool feature of the United States where it’s just expected that you will.” So, my guess is, it’ll– I fade the Zelman thing, but I would say, and if I didn’t say this strongly enough before, she’s really good, and I’m kind of a dope. So, we’ll see if my [unintelligible [00:38:17] ends up being right or wrong.

Tobias: One of the interesting things about the work from home phenomenon, which we’ve talked about before, and JT had this chart that he tweeted out earlier today. Basically, there’s many fewer people working from home, even at the peak of the pandemic, whenever the peak was, March 2020 or whenever most people were working from home, but I think the absolute peak was 40% or something like that. Then, currently, it’s about 12% or 13%. Those numbers might be wrong. It’s off the top of my head. But JT had this percent teleworking because of the pandemic by occupation in month. And really, mostly, the biggest area is secondary school teachers, elementary, and middle school teachers, post-secondary teachers, this is by order of working from home at the peak of the pandemic.

Jake: Percentage of who are working from home.

Tobias: Of the profession, yes, proportionate profession. Then, software developers, lawyers, education administrators, teaching assistants, so it sounded to me like it was mostly– there’s a lot of teaching in there, but most of the rest of the folks were in the office. What’s the impact on– If it does in fact, turn out this way, what’s the impact on real estate prices, commercial real estate?

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